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January 2011

January 28, 2011

Last week, in remarks to the US Chamber of Commerce, Federal Trade Commission (FTC) Chairman Jon Leibowitz sought to defend the Consumer Financial Protection Bureau (CFPB) to one of the CFPB’s primary opponents. Indeed, during the speech, Chairman Leibowitz quipped that the FTC and the CFPB would be so busy focusing on “bottom feeder” companies that the agencies would not have the resources to excessively regulate “legitimate” businesses.

As has been reported previously, The Dodd-Frank Wall Street Reform and Consumer Protection Act created the CFPB to serve as the primary regulatory authority over consumer financial products and nearly every federal consumer financial protection law. The CFPB and the FTC will share regulatory authority over nondepository institutions, and also coordinate enforcement efforts through a negotiated memorandum of understanding - the difference is that the CFPB will have a budget that dwarfs that of the FTC. The CFPB is scheduled to begin its regulatory operations on July 21, 2011, and the President, with Senate’s consent, must still appoint a single director to run the agency for a five-year term.

In the speech to the Chamber of Commerce, Chairman Leibowitz acknowledged that the CFPB’s broad power, independent (and large) budget, and enormous staff should cause anxiety within the business community. However, Chairman Leibowitz noted that these fears are unfounded primarily because the Obama Administration has signaled a more pro-business direction following the 2010 mid-term elections.

Actually, the biggest signal of the CFPB’s impact on business will likely occur when the President nominates the Director of the CFPB. The Director, in conjunction with White House Special Advisor Elizabeth Warren, will set the culture and policies for how the CFPB’s broad authorities will be applied.

Chairman Leibowitz envisioned a regulatory world where the FTC and CFPB will work collaboratively to “weed[] out crooks and scam artists who divert dollars from legitimate businesses.” He would like for the two agencies to focus on “fly-by-night ‘foreclosure consultants’ taking advantage of struggling homeowners, debt collectors engaged in illegal harassment, and payday lenders failing to disclose outrageous fees.” Given those priorities, he remarked that the remaining “legitimate” businesses should be subject to limited regulatory burden. The future will show whether Chairman Leibowitz’s more powerful, and yet to be determined counterpart at the CFPB will share this regulatory vision.

January 27, 2011

Fresh off of settling claims related to advertising the use of magnolia bark in gum, Wrigley is now under attack for its claims about cardamom’s breath-freshening capabilities, particularly that it “is scientifically proven to neutralize even the toughest breath odors from coffee, garlic, onions and even smoking.” A class of plaintiffs filed Nichols v. Wm. Wrigley Jr. Co.in the Southern District of Florida, seeking relief on five theories: fraudulent concealment, negligent misrepresentation, intentional misrepresentation, breach of express warranty, and unjust enrichment. Plaintiffs did not seemingly take on the notion that cardamom helps with bad breath, just the establishment claim that Wrigley had “scientific proof” of this assertion. Wrigley sought dismissal of the suit, stating that the class had not pled facts sufficient to establish that any of the claims on Wrigley’s packaging were false.

The court recently dismissed the entirety of the lawsuit without prejudice, noting that the plaintiff had not sufficiently pleaded any of the five causes of action with which the class was charging Wrigley. The court did opine that the plaintiffs had pled sufficient facts to properly allege falsity as the Complaint “identifie[d] a particular statement and submit[ted] that the statement [was] false.” Though the class plaintiffs achieved this small victory, in the end, they failed to satisfy the pleading requirements for each of their five causes of action.

The class’s first claim--fraudulent concealment--failed as there was no allegation that Wrigley had concealed any information. Both the negligent and intentional misrepresentation claims failed because the class had not claimed that its participants would have behaved differently if they had not been led to believe that the packaging’s claims about “scientifically proven” bad-breath-fighting ingredients. The court dismissed the breach of warranty claim because the plaintiffs had not notified the defendant of any alleged breach. Finally, the unjust enrichment claim was dismissed because the putative class has an adequate remedy at law.

Given that the court dismissed the original Complaint without prejudice and determined in dicta that the Complaint sufficiently alleged a false claim, it was only a matter of time before the plaintiff came up with another theory for the case -- in its Amended Complaint, the plaintiff dropped all but the negligent and intentional misrepresentation claims, while adding a count alleging violation of the Florida Deceptive and Unfair Trade Practices Act. In its opinion dismissing the original Complaint, the court made it clear that any putative class will have difficulty proving injury and damages or in other words that they would have paid less for the gum had they known the claim is false that cardamom is scientifically proven to improve stinky breath. The Amended Complaint tries to bolster the original Complaint by adding an allegation that the gum failed to neutralize bad breath and that Wrigley has engaged in unfair and deceptive practices” by not possessing information substantiating its claims about scientific proof.

In an attempt to deal with the damages issue, the Amended Complaint alleges that consumers paid a “premium price” for the gum. Whether there was some sort of extra price paid for the cardamom gum will likely be a factual issue. Whether the plaintiffs can prove that all of the class members bought the gum because of the allegedly false claims (as opposed to some other reason -- such as they liked the flavor) seems unlikely and should give the judge something serious to chew on in considering future motions.

January 26, 2011

For an employer looking to hire new personnel, the prospect of uncovering information regarding an interviewee’s academic background, past experience and deep dark secrets, as well as confirming the veracity of the resume -- just by typing in someone’s name -- is appealing. For the potential new hire, the prospect of a stranger having access to such information is bound to feel invasive, especially when other irrelevant but highly personal information is available. The interviewee may have a previous marriage uncovered, salary from years ago made known, an obscure hobby exposed, or children’s ages revealed. But much of this information is now available on the Internet. Spokeo.com offers users four different search options: by name, email, phone number, and by username. In addition, if you grant the website access to the contact list in your gmail, hotmail, yahoo or aol mail accounts it will conduct a blanket search and return information on all of your contacts. Is it magic? Your own private investigator? Or is it merely the equivalent of a modern town gossipmonger, returning bits and pieces of information gleaned from what is already out there.

Spokeo.com says it is “not your grandma’s phonebook” and describes itself as “a search engine specializing in aggregating and organizing vast quantities of people-related information from a large variety of public sources.” It lauds itself as surpassing the capabilities of conventional search engines by penetrating the deepnet or deepweb of the internet, where public records are stored. Spokeo users can search a name and are allowed access to basic information such as names and ages of family members (including minor children), marital status and address, as well as property value and current income level, but in order to see a full profile containing information such as credit history or hobbies, a user has to sign up for a membership and pay a fee. Although Spokeo claims its goal is to facilitate connecting people and that it has received numerous accolades, it also has provoked negative reactions (here and here). The Center for Democracy and Technology (CDT) recently submitted a complaint to the FTC petitioning the agency to investigate Spokeo for violations of the Federal Trade Commission Act (FTCA) and the Fair Credit Reporting Act (FCRA).

The CDT complaint raises the concern that Spokeo.com contains significant inaccurate information, and does not allow consumers to edit or remedy the information. CTD asserts that offering inaccurate and misleading information and selling it is a deceptive practice under Section 5 of the FTCA. CTD also asserts that Spokeo’s practices are unfair since most Americans are unaware that Spokeo has their information and potential employers and others may access their information and act upon it causing harm. Section 5 of the FTCA defines a practice as unfair if the injury it causes is 1) substantial; 2) not outweighed by countervailing benefits to consumers or to competition; and 3) not reasonably avoidable by consumers. Additionally, CTD states that Spokeo puts forth consumer reports as defined by the FCRA, but does not offer consumers the protections given by the FCRA such as rights of access, redress, and notification of adverse decisions.

Although consumers may opt-out of Spokeo’s listings, this may be tantamount to treating the symptoms but not the root cause, since the information still exists on the deepnet, albeit not in such a neatly bundled and readily searchable form. Whether there can be a reasonable expectation of privacy by consumers (who have willingly given out certain information without a promise of confidentiality about themselves but did not expect it to be compiled, distributed widely, and sold) remains to be seen.

January 24, 2011

Starbucks announced last week with some fanfare that it now will let customers pay for their coffee with their BlackBerry or iPhone if it has the Starbucks Card Mobile App (see here).

How does this app work? According to Starbucks, the app is “a complement to your plastic card.” Thus, you still have to get a plastic Starbucks Gift Card, which has been around for years. What the app does is display a barcode on your smartphone. The barcode is linked to the Starbucks Card number, so when it is scanned, money can be deducted from the Starbucks Card to pay for the purchase. Starbucks may be the first major chain of coffee shops in the US to offer this type of app, but it would seem that other retailers could easily follow suit if customers like it.

And what’s not to like? Whether you use a retailer-issued plastic card or a barcode linked to that card to pay for your purchases, the applicable consumer financial protection laws are the same (and they are very limited). A retailer-issued card like the Starbucks Card does not work like a bank debit card. In fact, it is not linked to any account at any financial institutions, and most of the traditional disclosure requirements and other restrictions of the Electronic Fund Transfer Act and Regulation E do not apply. Also, if no fees are charged for the issuance or use of the card and the card has no expiration date, as in the case of the Starbucks Card, the gift card disclosure requirements added to the EFTA by the CARD Act of 2009 would not apply, either.

Nevertheless, debiting a customer’s bank account in order to load value onto the customer’s card would be subject to Regulation E, which means the retailer must obtain the customer’s authorization properly to do so (through the swipe of a debit card or otherwise). Alternatively, using a credit card to load funds onto the card would be subject to the protections of Regulation Z. From the consumer’s perspective, the important thing to remember is that, when you lose a retailer-issued card like the Starbucks Card or the smartphone that carries the corresponding barcode, it is no different than losing cash, unless you call the retailer immediately and you have registered the card with the retailer. If you hadn’t registered the card, the retailer would not be able to identify the card you lost. In contrast, when your bank debit card gets lost and someone else uses it, your loss is limited to $50 by law, assuming that you provide timely notice.

But while the protection is limited, the convenience of using the app may turn out to be too tempting. Modern society likely could function without nutrients (which is not a synonym for food or coffee) for a moment; but could it without BlackBerries or iPhones - or coffee?

January 21, 2011

If you thought Lanham Act false advertising cases were just about getting a company to stop saying something untrue, think again. A group of salons is attempting to use the Lanham Act to stop its suppliers’ alleged false advertising, or, in the alternative, to pressure the suppliers to make changes to their distribution practices that would actually make the advertising … true!

A group of professional salons, led by Salon FAD, a non-profit organization dedicated to fighting against the diversion of professional hair-care products into non-professional retail channels, filed a class action lawsuit against several large hair-care product manufacturers, alleging that defendants advertise their hair-care products as “Sold Only in Professional Salons,” and other similar claims, to boost consumers’ perception of the quality of the product, all the while turning a blind-eye to what plaintiffs claim is the wide-spread diversion of these “salon-only” products into retail chains such as CVS and Walgreens. Plaintiffs contend that after the defendant-manufacturers ship product to wholesalers, the defendants are not doing enough to stop the wholesalers from diverting these supposedly “salon-only” products to large retail chains. According to the complaint, more than $1 billion of the $5 billion in annual sales of “salon-only” products are from diverted products.

Last week, the SDNY denied defendants’ motion to dismiss the suit. Defendants had challenged plaintiffs’ standing under both Article III and the Lanham Act, arguing that it is the diversion of the product by wholesalers that is the cause of plaintiffs’ injury, not the alleged false advertising. With respect to Article III constitutional standing, Judge Cote rejected defendants’ arguments on the grounds that the salons’ reputations could be harmed if consumers, after purchasing these “salon-only” products from salons, later discovered that they were also available through non-professional channels. Under the Lanham Act, defendants also argued that plaintiffs did not have standing to sue because there is a heightened standard for showing causation and injury where the products are not in obvious competition. The Court, however, relied on its recent decision in Famous Horse Inc. v. 5th Ave. Photo, and held that even where retailers and manufacturers are not in direct competition, the retailer still has a “reasonable interest” and a “reasonable basis” for believing that the manufacturers’ false advertising could cause the retailers reputational harm.

Despite the win on this motion, is this a “be careful what you sue for” situation? While an injunction preventing defendants from using the phrase, "salon-only," may be a win on the docket for plaintiffs, it could lead to an outcome inconsistent with their stated goal of keeping professional products out of retail chains like CVS and Walgreens. After all, if defendants are forced to choose between altering their distribution practices or dropping the “salon-only” marketing slogan, they could decide that mass retail distribution is more valuable.

January 20, 2011

The UK’s advertising regulator, the Advertising Standards Agency (ASA), has applied a post 9pm watershed restriction to a television advert for the film SAW 3D following a complaint from a child.

The advert started by showing scenes from the horror film whilst a voiceover said “Now it’s your turn to play”. It then showed metal restraints appearing around the arms and shoulders of a man wearing 3D glasses, circular saw blades flying out over the audience and a figure reaching out into the cinema and lifting a person back into the screen. A ten year-old child said the advert, which was aired at 8.29pm during a family gadget show, was “distressing” and “inappropriately scheduled”.

Clearcast (which pre-clears most UK television advertising on behalf of broadcasters) said that the advert had been given a post 7.30pm restriction in order to keep it away from young children. Whilst Clearcast noted that the advert did feature some scenes of distress, it felt that anyone watching television after 7.30pm would understand that the advert was for a film and “therefore clearly based in fantasy”. The ASA considered that, although the advert was based in fantasy, the scenes of people in the cinema linked the scenes from the film with a “recognisably real situation”. As such, the advert was likely to cause distress to young children and the post 7.30pm restriction was not sufficient.

Moral: Complaints can be made by anyone (including 10 year-old children!). Unfortunately, this is yet another example of Clearcast getting it wrong. In the UK, take care when featuring images or themes that may distress young children and ensure that the positioning of adverts is suitable for the target audience.

January 18, 2011

Last week, the FTC announced that it has reached an agreement with a company called Tested Green that will require the company to stop selling allegedly worthless environmental certifications that do not test or otherwise investigate whether the recipient companies have environmentally friendly products. The consent focuses solely on the certifying company, going to the root of the matter, rather than on the companies who used the Tested Green seal in their marketing.

The FTC’s action on this front likely will not come as a surprise to our readers. Last October, the FTC’s proposed revisions to its Green Guides created a new section for its guidance on certifications and seals of approval. (Proposed revisions summarized here.) FTC Staff has emphasized its growing concern with use of green seals to convey overreaching product environmental benefits. The proposed revisions emphasize:

Third-party certifications and seals constitute endorsements covered by the Endorsement Guides. As such, marketers are required to disclose a “material connection,” or a “connection between the endorser and the seller of the advertised product that might materially affect the weight or credibility of the endorsement.” (16 CFR 255.5)

It is deceptive to misrepresent, directly or by implication, that a product, package, or service has been endorsed or certified by an independent, third-party organization.

The use of a certification or seal by itself may imply a general environmental benefit claim. Marketers should accompany seals or certifications with clear and prominent language limiting the general environmental benefit claim to the particular attribute or attributes for which they have substantiation.

It is the marketer’s responsibility to ensure that the certification adequately substantiates its claims. Simply possessing a third-party certification does not eliminate their obligation to ensure that they have substantiation for their claims, including all claims communicated by the certification. A marketer may rely on a third-party certification as all or part of its substantiation if the marketer ensures that the certification constitutes competent and reliable scientific evidence to support its claims.

The proposed revisions came at the end of a year that, according to the current TerraChoice report, saw the percentage of “green” home products giving the impression they are certified or endorsed by a third party where no such certification or endorsement actually exists rise to 32%, up from 26.8% in 2009. The increased use of “green” certifications has also had an impact in the trademark context.

So why Tested Green? The FTC complaint alleges that Tested Green advertised and sold “Tested Green” certifications to businesses via its website and e-mail solicitations from February 2009 through April 2010. More than 100 customers purchased Tested Green’s “Rapid” or “Pro” certification, at the price of $189.95 or $549.95, respectively. The FTC alleges that Tested Green falsely represented that it was “the nation’s leading certification program for businesses that produce green products or use green processes in the manufacture of goods and services,” stating that it “served over 65,000 certifications in the United States.” In fact, the FTC alleges, applicants for the Tested Green certification were not required to provide any information about their operations; once an applicant provided a name and address and paid the indicated amounts via credit card, he received the Tested Green certification and customizable advertising materials. Tested Green claimed that it was “endorsed by the National Green Business Association and the National Association of Government Contractors,” which were allegedly shell organizations created by an officer of Tested Green.

The FTC complaint charges three counts of violations of the FTC Act. First, “[b]y furnishing businesses with Tested Green Certifications, along with access to the HTML code for the Tested Green logo, and a ‘certification verification page’ that such businesses could edit and use to promote their Tested Green certified status, Respondents provided businesses with the means and instrumentalities for the commission of deceptive acts and practices.” Specifically, the Tested Green certification falsely represented that the products or services bearing such certification were independently and objectively evaluated based on their environmental attributes or benefits. Second, Tested Green made the false and misleading representation that it was endorsed by independent organizations. And third, Tested Green’s failure to disclose that it owns and operates those organizations was deceptive. Under the terms of the settlement agreement, Tested Green and its officer and parent company are permanently restrained and from making misrepresentations about its seal program.

“It’s really tough for most people to know whether green or environmental claims are credible,” said David Vladeck, director of the FTC’s Bureau of Consumer Protection. “Legitimate seals and certifications are a useful tool that can help consumers choose where to place their trust and how to spend their money. The FTC will continue to weed out deceptive seals and certifications like the one in this case.” Whether the FTC will focus enforcement efforts on companies using third party seals, and if so, the level of due diligence the FTC will require to investigate the bona fides of the certifying body remain to be seen. The FTC is making good on its promise to continue to investigate green claims while it works to finalize the revised Green Guides.

January 14, 2011

Celebrity twitter endorsements are becoming big business in both the US and abroad. Notable celebrities such as Snoop Dog and Kim Kardashian can reportedly command anywhere between US$3,000 to US$10,000 dollars a tweet. (Previously blogged about here) Meanwhile, both US and European regulators face a difficult task in determining whether to regulate the content of such paid endorsements and how to evaluate whether disclosures of the business connection between the star and the manufacturer are meaningful and prominent.

In a precedent-setting enforcement action, the UK’s Office of Fair Trading (OFT) launched an investigation this past December into a British PR firm, Handpicked Media, for secretly paying celebrities to endorse products on Twitter - an alleged violation of UK consumer protection law. Handpicked Media cooperated with the OFT throughout the investigation and ultimately agreed through signed undertakings to clearly identify when promotional comments have been paid for.

In connection with the investigation, the OFT issued a statement noting that “online advertising and marketing practices that do not disclose they include paid-for promotions are deceptive under fair trading laws.” The OFT emphasized that the regulations apply equally to "comments about services and products on blogs and microblogs such as Twitter." The press release is available here.

In October of 2009, the US’s Federal Trade Commission (FTC) addressed the issue of paid-for celebrity testimonials on blogs and social media sites when it issued revised guidelines governing the use of endorsements and testimonials in advertising. These guidelines indicate that bloggers and other word-of-mouth marketers may be considered endorsers in some circumstances, meaning that any “material connections” between advertisers and endorsers must be disclosed and that companies could be held liable for any claims the endorsers may make about their products. (Previously blogged about here.) The FTC guidelines also make clear that celebrities have a duty to disclose their relationships with advertisers when making endorsements outside the context of traditional advertisements, such as on talk shows or in social media, where it may not be apparent to viewers that the celebrities are being compensated for supporting a product or service.

However, the very nature of Twitter may make it difficult for celebrities to abide by such requirements. How does a celebrity adequately declare connections to certain brands in fewer than Twitter’s 140 character limit? Some Twitter users (both the celebrity and the non-celebrity variety) have begun to include the hash tag #spon for sponsored Tweets; and the hash tags #paid and #samp when they receive a payment or a sample product in exchange for a Tweet. Other creative options likely are available -- the key is clear and conspicuous disclosure.

January 13, 2011

While President Obama and his family took a rest and Congress was home during the holidays, the individuals at the US Treasury hired to organize the new Consumer Financial Protection Bureau were busy.

The results of their efforts have been announced over the last number of weeks, including the naming of the heads of the different divisions and offices within the CFPB:

Outgoing (and outspoken) Ohio Attorney General Richard Cordray to head the enforcement division

Leonard Chanin, the current Deputy Director of the Federal Reserve Board Division of Consumer and Community Affairs, to lead the rule writing team

David Silberman of Kessler Financial Services, and formerly of the AFL-CIO, to head the card markets division

Tim Duncan of Story Street Investment Management, to head the CFPB’s technology operations

David Forrest of the Motley Fool to head the online engagement team

Holly Petraeus, the wife of General David Petraeus, to head the Office of Service Member Affairs

These most recent implementation team members join Steve Antonakes, former Massachusetts Commissioner of Banks, who had been named to head the depository institution supervision area, and my former colleague, Peggy Twohig, who is heading the non-depository institution supervision team.

Another development included the execution on January 4, 2011 of a memorandum of understanding with the Conference of State Bank Supervisors for the coordination of examination and enforcement resources between the CFPB and state regulators in the consumer area. Under this MOU, state regulators and the CFPB will endeavor to promote consistent examination procedures and effective enforcement of state and federal consumer laws to minimize regulatory burden and efficiently deploy supervisory resources. The MOU also provides that state regulators and the CFPB will consult each other regarding the standards, procedures, and practices used by state regulators and the CFPB to conduct compliance examinations of providers of consumer financial products and services, including non-depository mortgage lenders, mortgage servicers, private student lenders, and payday lenders

In addition, Elizabeth Warren, the White House adviser assigned to set up a CFPB, has been meeting with various financial services firms to assess their needs and concerns, at the same time as she has continued to be outspoken about the need for clear, simple terms and disclosures for all consumer financial products. More announcements about the organization of the CFPB are surely coming. All this activity suggests that the CFPB will be well prepared to hit the ground running on July 21, 2011 when it is scheduled to be officially launched. Both bank and non-bank lenders should be prepared for active supervision and enforcement by the new agency by reviewing their marketing, product terms and compliance programs now.

January 12, 2011

A free, trusted personal shopping assistant showing up right at my home to tell me what is in style and where to get good deals sounds too good to be true. However, the new growing trend of Vloggers (video bloggers) creating “haul videos” where shoppers show off recently purchased items called “haul” does just that. According to Good Morning America, more than 110,000 videos are on YouTube, averaging around 10 minutes each. There is even a haul video website that compiles haul videos already on YouTube. Teenage girls are leading the phenomena, making enormously popular haul videos from their bedrooms after a day at the mall, with two of the leading vloggers, Elle and Blair Fowlers, generating a following such that their YouTube videos have been viewed 75 million times.

Certain retailers have been picking up on this way to reach the tween and teen market by sending free merchandise to the popular vloggers. Although Elle and Blair claim that they “would never review something that they would not have spent their own money on,” under the FTC’s Guidance on endorsements and testimonials they may be considered endorsers of the product and may need to disclose any freebie they receive.

We have previously blogged about the FTC’s latest revisions to guidance to advertisers regarding endorsements and testimonials. Bloggers who participate in marketing programs where they receive free products to review or who receive incentives for talking to their friends about a product can be considered endorsers and therefore put a retailer under scrutiny and possible enforcement action by the FTC. In the same way, vloggers and the companies for which they advertise may be in murky water when the line isn’t clear if a vlogger is discussing products of her own volition or if she is influenced by the company itself. One vlogger, reported by the New York Times, stated that she believed “undisclosed payments between haulers and suppliers were probably routine,” judging from her own experience with companies approaching her to endorse. In the area of product endorsements and haul videos, the FTC may be particularly concerned about the potential to mislead a vulnerable audience of preteens who tune into a vlogger to hear a friend giving advice about her favorite stores and items even though the vlogger is actually paid.

The FTC staff has stated its position that bloggers must be explicitly told to disclose to their readers when they received free merchandise or other compensation, and that posting a sign at a conference telling bloggers to disclose isn’t enough. It is the companies or retailers, and not the endorsers, that the FTC will investigate and, therefore, retailers must have responsible steps in place to require that bloggers and vloggers disclose any relationship to the company and require those disclosures to be clear and conspicuous. When the intended audience is young consumers, the disclosure must be prominent and understandable to them. Blair Fowler appears to do it right in one of her haul videos where she advertises a shoe website’s giveaway competition, and begins by explaining that she received a free pair of shoes from the company in the mail. In the world of tweens, where she who has the most trendiest stuff wins, retailers face the dual challenge of ensuring compliance with FTC guidelines on disclosure and with tween guidelines on what’s cool.

January 10, 2011

Once again, gift cards were a big seller during the holiday season. A National Retail Foundation survey showed that well over half of adults wanted gift cards over clothing, books, entertainment and other options.

The cards offered this season carry more legal protections for consumer than those offered in previous years, thanks to the Credit Card Accountability Responsibility and Disclosure or CARD Act. Most of the gift card provisions of the CARD Act became effective in August 2010, and included expiration date and replacement date requirements, as well as limits on fees such as dormancy, inactivity and service fees. (See prior blog here for all the details.)

The CARD Act also requires that the expiration date and any fees that may apply to the card be actually placed on the face of the gift card, along with a toll-free telephone number people can call for more information. However, to allow gift card issuers to use up their old card stock, Congress amended the CARD Act in July to give businesses with cards produced before Apri l1, 2010 up to January 31, 2011 to replace all their card stock with cards that comply with these disclosure requirements.

Those businesses selling these non-compliant cards in the interim period have been required to inform the consumer of the expiration date and applicable fees by providing notice via in-store signs, web site disclosures, general advertising, or service calls. In addition, the business is required to advise consumers that:

Any gift card or gift certificate for which funds expire shall be deemed to have no expiration date with respect to the underlying funds;

Consumers holding these cards have the right to a free replacement card or certificate that includes the packaging and materials that are typically associated with these cards; and

Any dormancy fee, inactivity fee or service fee for such cards or certificate that might otherwise be imposed may not be charged unless they would otherwise comply with the CARD Act fee restrictions.

However, as of January 31, 2011, businesses that still hold gift cards or certificates produced prior to April 2010 must replace those cards or certificates with cards that comply with the on-card disclosures required by the CARD Act. Depending on sales, these replacements may be costly. In any event, conducting a thorough inventory of gift cards being sold at your business likely should top a retailer’s New Year’s resolution list.

January 07, 2011

If you were thinking of commenting on the FTC’s proposed revision of the Green Guides, put the pen down. The comment period officially ended last month. The FTC received over 300 public comments. Many of the comments have focused on the FTC’s position that general claims such as “green” or “environmentally friendly” cannot be used unless qualified. The proposed revised Guides strengthen the FTC’s position based on consumer perception research that, unless qualified, such claims convey broad sweeping environmental benefits and cannot be used.

By way of example, the Washington Legal Foundation (WLF), a non-profit public interest law and policy center based in Washington, D.C. that advocates for free-market policies and the protection of free speech rights of the business community, filed formal comments. WLF believes that the FTC’s proposed ban on all unqualified general environmental claims is a disservice to consumers and an infringement of First Amendment rights protecting commercial speech. The FTC based its prohibition of unqualified claims on the results of a consumer perception study that asked participating consumers whether they thought a specific product advertised as “green” or “eco-friendly” possessed the following attributes: (1) recyclable; (2) made from recycled materials; (3) biodegradable; (4) compostable; (5) made with renewable energy; and (6) made with renewable materials. Because a significant number of consumers responded that they believed that a product advertised as “green” or “eco-friendly” possessed one or more of those attributes, the FTC concluded that many consumers are misled by unqualified general environmental claims. WLF contends that, in their experience, a majority of consumers are not readily familiar with the meaning of these terms and had the terms not been provided, only a small fraction would have volunteered those attributes on their own. Thus, WLF believes that the results of the FTC’s study are an unsound basis for a blanket prohibition against unqualified claims. To the contrary, WLF believes that most consumers assume that a product labeled “green” or “eco-friendly” has some unspecified environmental advantage. As long as a marketer can substantiate that advantage, it is the WLF’s view that the FTC cannot reasonably conclude that the claim is “deceptive.” In the few instances where the marketer cannot substantiate such a claim, the FTC should bring an enforcement action. A categorical ban on all such generalized claims, however, cannot pass First Amendment muster. In addition, a categorical ban as proposed by the Green Guides would deter manufacturers whose product truly contains an environmentally-friendly attribute from conveying such information due to the expense of adding disclaimers that qualify their environmental claim.

WLF also has concerns with the Green Guides’ restrictions on the use of the term “degradable.” Under the current language, marketers cannot use the term “degradable” even if it will degrade in the presence of water and oxygen if the product is likely to be disposed in environments (such as landfills) that lack those elements. In WLF’s opinion, not only does the rule cut against the commonly understood definition of “degradable” and “biodegradable”, but it also deprives consumers of information they want to have. For example, such a rule would deprive consumers of the ability to differentiate between non-degradable plastic bags and plastic bags that are degradable only when exposed to water and oxygen. Given the controversy in a number of communities over the use of plastic bags, it is unlikely that a consumer would not choose the latter if it had access to such information. WLF contends that saavy consumers already understand that “degradable” products are not likely to degrade in a landfill and that a more sensible solution to the risk that consumers could be deceived by claims that a product customarily disposed of in a landfill is degradable is to require a short disclaimer to accompany the degradable claim, such as “degradable under appropriate environmental conditions.”

Finally, WLF expressed concern over the FTC’s proposal to prohibit marketers from advertising a carbon offset if the activity that forms the basis of the offset is already required by law. Similar to their objections to the FTC’s proposed restrictions on the use of the word “degradable”, WLF believes that carbon offset advertising is information consumers want to know, regardless of whether the activity is being done voluntarily or is required by law. Thus, given the importance some consumers place on carbon offsets, a company’s motivation for participating in carbon offset programs should be irrelevant to whether a company can advertise this activity.

While it will take the FTC Staff some time to review the many comments and consider whether and how to incorporate them into the revised Green Guides, we would expect to see final guides sometime this spring or early summer, followed by heightened FTC enforcement in the environmental marketing area.

The first advert promoted a deal for two diners to enjoy a South American meal for £9.80 instead of £24.50, however it failed to make clear that one diner would have to pay full price in order for the second diner to obtain the discounted price.

A second advert claimed customers could enjoy 60% off a “Segway Safari” experience, but did not mention that a £10 surcharge would be charged at weekends.

A third advert which claimed that two diners could enjoy a three course meal for £29 instead of £83.50, at a saving of 65%, was challenged for being exaggerated.

Groupon argued that it had no interest in misleading customers; the inaccuracies in the first two adverts were a result of drafting errors and omissions by staff. It promised to address future problems through “extensive staff training and quality control safeguards”. It stated that the discount in the third advert was correct at the time the agreement was signed with the relevant restaurant.

The ASA accepted that the inaccuracies in the first two adverts were due to drafting errors and omissions by staff, but considered that the mistakes in both adverts rendered them misleading. It concluded that the third advert was also misleading as it implied customers would save 65% on the three course meal, however the saving could only be achieved by selecting the most expensive menu items. It stated that Groupon should have qualified the claim by stating that 65% was the maximum saving that could be achieved and was based on selecting the most expensive menu options.

Moral: Ensure that adequate controls are in place to check the accuracy of adverts before they are launched, and never exaggerate claims without qualification.

One of FP’s competitors, Starchtech, Inc., a company whose packing materials are made from starch, challenged green-friendly claims made by FP on its packaging as well as in various advertising materials. Promotional statements highlighted FP’s claim that the Biodegradable Super 8 Loosefill product was biodegradable and would “decompose completely within 9 to 60 months” [whether in a landfill (without air) or if littered elsewhere on the ground (with air)]. NAD also examined some of FP’s more-general claims, including those stating that its products were more environmentally-friendly than products made from starch.

January 03, 2011

Tis the season for retailers to turn to the expensive and painful process of holiday gift returns. Some analysts estimate up to 30% of gifts are returned or exchanged. This process is made all the more cumbersome when the gift was purchased online. Returns of the latest electronic gizmos may mean they can only be resold as used or refurbished if they have been opened and test driven before being rejected. Amazon.com’s newest revolutionary advancement may cure the ills of returns and restocking for retailers and quite possibly end gift-giving as we know it. Its “converting gift” patent (covered here, here and here) will allow recipients of gifts from Amazon.com to pre-screen their gifts before receipt and opt to do a variety of things in lieu of actually receiving the gift. According to the patent, users can decide whether the gift should be converted into a gift certificate, whether the gift should be converted to another gift, whether the gift should be converted to the same gift but in a different size or format, and whether the gift should be converted to a gift for someone else. Users can create rules to specify the extent of information they will receive regarding the gift (i.e., details as to the category of gift item), whether the gift should be automatically converted, or just whether the user should be notified of the gift.

Basically, it sounds like, if this patent is fully implemented, little Johnny will be able to assure that any clothing item can be converted to a video game and that he will only receive a videogame on the list that he promulgates ahead of time. The question raised by the Washington Post and other commentators, is what about the poor gift giver? For example, there is the aunt who spends countless hours picking out the perfect gift for her nephew only to walk away unaware that the he “unwraps” the gift online days before his birthday or Christmas, and order himself something else behind her back.

Although this patent has been the topic of a debate regarding the etiquette of gift-giving, as retailers develop new policies, it is a good time to review the legal basics about disclosure of return policies generally. It is well established that retailers should clearly and conspicuously disclosure their return policies. The FTC has detailed guidance regarding how to make disclosures online to avoid unfair or deceptive acts or practices in the Internet sphere. Online retailers should place disclosures, including those regarding the return policy, in a prominent location on their websites and make them noticeable prior to the purchase page, such as on the home page. A disclosure may need to be repeated several times in order to avoid deceptive messaging. What is required for each retailer differs depending on the website, but the FTC has made clear that the message must be accessible and clearly conveyed to consumers. In addition, various states have specific laws regarding return policies. For example, in New York, retailers must post the policy clearly in every establishment and state under what conditions a refund will be given. In California, there is a presumption that a retailer will accept an item for a refund, credit or exchange within 7 days of purchase, and any policy that differs from this must be disclosed at the time of purchase.

The bottom line is that any policy, old or new, should be clear to consumers and avoid the appearance of being deceptive or misleading. While Miss Manners might have serious reservations about the propriety of pre-returns, from a legal perspective, the key is simply clear and conspicuous disclosure, including letting the gift giver know that the selected present might be returned sight unseen.